Legal Blog

Don’t Let A Mechanic’s Lien Waiver Kill Your Claim for Payment

October 20, 2017

Mechanic’s lien waivers are a way of life in the construction industry and most subcontractors, general contractors and material suppliers have submitted them at one time or another. But while lien waivers often appear to be simple one page documents, they can be dangerous to those signing them and can wreak more havoc than a 150-page construction contract.

It is important to recognize that while lien waivers may appear similar and “standard,” they come in many forms. Some waivers bar a contractor’s right to file liens for work up to a certain dollar value, while others may bar a contractor’s right to file for labor and materials furnished up to a certain date. Lien waivers may also be linked to specific invoices or pay applications. They can be partial, final, conditional or unconditional. Because lien waivers come in so many flavors, contractors must understand exactly what rights are being “waived’ and released. Simply signing a lien waiver because other contractors are signing the same document, or because the lien waiver is part of the owner’s or general contractor’s standard forms, is a big mistake.

The Virginia case of United Masonry Incorporated of Virginia v. Riggs, 233 Va. 476 (1987) is a perfect example of a lien waiver that turned ugly for a contractor. In United Masonry, the contractor a signed lien waiver to obtain a progress payment. The lien waiver recited the amount to be paid to the contractor upon receipt of the lien waiver. However, the amount being paid was not the total amount due to the contractor at the time, and was only a partial payment. Because the contractor had inserted the amount of the payment in the lien waiver, and not the full amount due, the contractor believed that he could still assert a lien on the balance due and owing. The court held otherwise, and denied the contractor’s right to file a lien for the balance due. The court found that the lien waiver did not specifically state that the lien waiver was enforceable only to the extent of the amount paid (i.e. the amount listed in the lien waiver). The court read the lien waiver strictly, and held that the contractor had waived its right to file a lien on the entire amount due up to the date certain.

Lien waivers can also cause problems where labor and/or materials (or rental equipment in many jurisdictions) are simultaneously furnished on numerous projects involving the same general contractor or owner. The party signing a lien waiver in such situations must specifically define the project at issue, and the specific parties involved in the project where payment is being issued. An overbroad lien waiver can result in unintended lost liens with respect to other projects.

Contractors must also understand that lien waivers can waive more than just the right to file mechanic’s liens. Depending on how they are drafted, mechanic’s lien waivers can also release other parties in the construction chain from their payment obligations. Such inadvertent releases can be fatal to a contractor’s right to collect down the road.

Unfortunately, many construction professionals are misled as to the seriousness of lien waivers by unwitting general contractors and owners, who oftentimes do not understand the consequences of their own documents. It is typical for project managers and owners to misrepresent or over simplify the purposes and scope of lien waivers. These misrepresentations are often made because those providing the form lien waivers do not understand the scopes of those waivers, which have been drafted by attorneys or which have been pulled from old projects or form books without regard to how the instant project is being funded or paid. Construction professionals must be careful to do their own careful review and not rely on the owner’s or project manager’s characterizations as to their lien waivers. Lien waivers are never mere formalities to payment, and representations that they are “standard” should be disregarded.

ABOUT BRIAN LOFFREDO

Brian is a commercial litigator with more than seventeen years of experience representing clients in the franchise industry. Brian routinely assists clients during the licensing and franchise/FDD review process, as well as with the resolution of franchise-related disputes, including those involving terminations, territorial disputes, fraud, disclosure/relationship law violations and breaches of contract.

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